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5 credit lessons for college students

By Rajiv Raj
November 15, 2015 10:07 IST
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Here are some very important credit gyaan you wish you had got from your parents

Remember playing the game of business as a kid? Money on credit was easily available for the players. Well, the reality is not too different today. Credit cards are being offered to students right out of college. This makes it important on the list of topics parents must discuss with their children.

Credit cards were not a very common phenomenon in our parents' generation. Maybe that's why they never felt the need to talk to us about it. Over time, spending power has increased and so has the means to spend. While experience does teach us lessons the hard way, these need to be shared with the next generation. So here is what every first time credit card user must know.

1. Get the basics right!

The simple formula is that the sum total of your monthly expenses must always be less than the sum total of your monthly income. Live within your means is a quote we must adhere to.

While having a credit card in the pocket encourages you to spend more freely than if you had to part with hard cash immediately, the basic formula has to be followed.

Many adults themselves do not realise this until later. Credit cards allow us the flexibility to use money but it is important to be aware of the spending amount while doing so.

2. That pile of charges

Blissfully unaware and not willing to dig deeper, we do end up paying a lot of random charges levied on various financial products. Credit cards are no exceptions.

Ranging from annual charges to various payment charges, a lot of these go unnoticed as we pay the bill. Often the amount is not substantial enough to draw our attention, howeverthe cumulative amount is definitely a financial blow.

The first step is education and knowing more about these charges. Step two is being aware about them and sharing our knowledge with other credit card users.

Nobody looks forward to unexpected surprises in their bills.

3. Get interested in interest

The excitement linked to using a credit card for the beginners is very high! It opens doors to a whole new world where purchases can be made without actually having the cash in your wallet. However, the costs associated with this privilege are totally ignored. Though, everybody holding a card is definitely aware of the interest bit, the impact it can have cannot be comprehended unless put down in numbers.

The best way to do it is calculate the interest linked with the maximum amount you may use subject to the dues being cleared in a specific timeframe.

Once you know the cost of money, usage will automatically be calculative.

4. Don't play scarecrow

Credit cards can offer great benefits and the fact that it is a well-received product worldwide is proof. While all the benefits are highlighted and are attractive enough for making a purchase using credit cards, not all the associated cons are well known.

It is important to know the pros and cons to use credit cards smartly. Young people must have enough information to make an informed decision before handling credit cards or any other credit product for that matter.

5. Paying for longer than expected

Students may be attracted for using credit cards right out of college for multiple purposes. The fact that a job hunt can take longer than expected is hardly taken into account. That leads to piling up of debt and a huge amount is left to be cleared.

Awareness of this aspect can help limit the expenses drawn on credit cards while waving goodbye to clearing piled up debt.

It is our responsibility to make young credit card users aware of the above points. Reading this article will definitely educate and help them in their spending habits when it comes to swiping that card. Good spending habits and financial planning will lead them to a prosperous future.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Photograph: GotCredit/Creative Commons

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Rajiv Raj